Colorado Court of Appeals Rules It’s Illegal for Auto Insurance Companies to Restrict UM/UIM Coverage to Certain Vehicles

The Colorado Court of Appeals has ruled that it is illegal for auto insurance companies to restrict uninsured/underinsured (UM/UIM) motorist benefits based on vehicle use.

Plaintiff Beverly Hughes sued her insurance company Essentia Insurance Co. after she was injured in a wreck while driving her “regular use vehicle”. Essentia denied her claim for UM/UIM benefits under her classic car insurance. Instead, the carrier said she was required to separately insure her regular-use vehicle to maintain her classic car insurance policy, according to the May 5 court ruling.

Essentia also argued that Hughes’ settlement with her separate auto insurance company, Travelers Insurance, meant she was “essentially protected by Essentia” and that the police followed state law.

The driver who allegedly caused the crash, according to court information, was insured under an auto insurance policy with bodily injury limits of $25,000, and Hughes claimed his injuries and losses “significantly exceeded ” this amount.

“The classic auto insurance policy explicitly excluded ‘regular use vehicles’ from UM/UIM coverage, and as a result Essentia refused to provide Hughes with UM/UIM benefits for his injuries because she was not using one of the classic cars at the time of the accident,” Court of Appeals Judge Craig Welling wrote in the notice. “Hughes filed a lawsuit, alleging that she was entitled to UM/UIM benefits under the Essentia classic car insurance policy regardless of the vehicle she was driving at the time of the accident.”

Judges Stephanie Dunn and David H. Yun agreed with Welling’s opinion.

The trial court ruled in favor of Essentia based on Section 10-4-609 (the state’s Insurance Protection from Uninsured Motorist Law), Colorado Revised Statutes and the interpretation of section 10-4-609 by the Supreme Court in Cruz v. Farmers Insurance Exchange. Essentia cites Cruz “in support of the proposition that certain exclusions in UM/UIM insurance contracts are permitted in Colorado, including exclusions for a regularly used vehicle that is uninsured (and for which no premium is paid) under the policy”, the opinion states.

However, Welling found that, pursuant to Rule 10-4-609(1)(c), “UM/UIM coverage is in addition to any statutory liability coverage and covers the difference, if any, between the amount of the limits of any legal liability coverage and the amount of damages suffered . . . up to the maximum amount of [UM/UIM] coverage obtained under this section. … In other words, UM/UIM coverage bridges the gap between the tortfeasor’s insurance liability limit and the amount of damages suffered by the insured, up to the amount of the UM/UIM coverage taken out.

They reversed the lower court’s judgment and sent the case back.

“We find that the trial court erred in failing to apply our Supreme Court’s decision in DeHerrera v. Sentry Insurance Co. … which provides that UM/UIM benefits cover persons injured by uninsured motorists or underinsured and cannot be linked to the occupation or use of a particular vehicle or type of vehicle.

The Colorado Supreme Court ruled in DeHerrera v. Sentry Insurance Co. that mandatory coverage under Section 10-4-609 applies to persons and not vehicles.

“In reaching this conclusion, the Supreme Court noted that ‘[t]The UM/UIM Act contains no provision excluding coverage of an insured based on the type of vehicle they occupy at the time of injury,” the judges wrote.

“…The exclusion of regular-use vehicles is squarely contrary to DeHerrera’s central position: that Section 10-4-609 provides coverage for persons and does not tie uninsured motorist protection to occupancy. by the insured of a particular type of vehicle. … Likewise, the cases decided after DeHerrera demonstrate that the regular use vehicle exclusion found in the definition of “insured” in the UM/UIM provision of the Essentia policy violates Section 10-4-609.

As for Essentia’s argument that they were “essentially protecting” Hughes through their requirement of a secondary policy, the judges rejected the argument.

“Even though Essentia demanded a second policy, Essentia cannot escape its own statutory duty to provide UM/UIM benefits (if the policyholder chooses to purchase them) to people, rather than cars, by trying to link its UM/UIM provided coverage to the occupation of “your covered self” (in this case, one of the classic cars).Essentia’s advocated interpretation is contrary to DeHerrera’s central position – that the UM/UIM benefits cover individuals and cannot be linked to the occupation of a certain vehicle.

The judges agreed that the two cases cited by the carrier – Jacox and Rivera – differ from the Hughes case and that the court is “bound by” the DeHerrera decision.

“The plaintiffs in Jacox and Rivera sought to recover UM/UIM benefits under the same policy that insured the vehicle in which they were injured and from which they had already collected under the liability provisions. Here, Hughes isn’t looking to invoke the liability provisions of the Essentia policy, just his UM/UIM advantage. And it does so because the at-fault driver’s coverage is inadequate, not because of any alleged deficiency in the Essentia policy itself,” the court opinion reads.

The court also ruled that Essentia’s policy did not meet the coverage requirements under Section 10-4-609 and therefore “public policy does not require the exclusion to be applied” .

“Whether DeHerrera reflects wise, fair, or prudent public policy is a question for the legislature (or the Supreme Court in the event it wishes to review DeHerrera); in the meantime, we are bound by DeHerrera,” the opinion reads.


Featured Image Credit: RiverNorthPhotography/iStock

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